Funding for Crossrail is close to being approved but will London businesses have to pledge more cash?

The 20-year saga over getting London’s Crossrail commuter rail system approved moved towards a conclusion last week, although there has been a final twist in the tale.

Cabinet is thought to have approved the project last week. But transport secretary Ruth Kelly then dropped a bombshell on business leaders who were expecting to be told funding was in place. Instead, they learned that the government needed to squeeze more cash out of them over and above a hike in business rates by as much as 4p in the pound. This is a rise many business leaders are expressing severe misgivings about.

Kelly left business leaders in no doubt that, despite already being asked to contribute more than one-third of the total cost, they need to come back to her with their own solution for find the missing cash thought to be in the “low hundreds of millions”.

Kelly wants them to find the money in time for a detailed funding announcement on Crossrail, to be made in the Comprehensive Spending Review on 9 October. Business leaders may need longer, and as NCE went to press it was possible that the go-ahead for the scheme could now be put back by a few weeks.

“We were told it is short of a few hundred million pounds,” said a source close to the Campaign for Crossrail, representing companies like airport operator BAA and business lobby group London First. “On that basis, she has put the ball back in our court and asked us to identify solutions to that funding gap. She particularly wants more from those businesses along the route that stand to benefit most.

“But she’s asked us: ‘can we do that in the next few days please?’,” said the source.

“This scheme has been 15 years in the making and we have been trying to get a meeting with the government on exactly this issue for the last four years. Frankly, that timescale may not be realistic but we will be as quick as we can.”

Solutions could include an equity stake in the project for those firms willing to stump up a one-off contribution. Alternatively, there could be a second “one-off” supplementary business rate for those businesses on the Crossrail route that stand to benefit most.

The good news is that despite these late shenanigans, a funding package for a scheme that will be a bonanza for the civil engineering industry is not far way.

With major London projects such as Heathrow T5 and High Speed 1 drawing to a close, industry is confident it can gear up for Crossrail with a long enough lead in time. If the Crossrail Bill gets Royal Assent next summer and the procurement of works packages takes several months after that, the industry will have a chance to be ready for work to start in 2009.

Work will begin with six months of site clearance, followed by three-and-half years of heavy civils work. This will leave two years to finish the scheme, including major Crossrail stations across the centre of London in time for the first trains to run in 2015.

One consultant working on Crossrail told NCE that tunnelling would not be any more difficult than the successful tunnelling for the soon-to-open High Speed 1 link into St Pancras Station. Ground conditions are likely to be clay with rock and running sand.

“The ground conditions are similar to those for the Channel Tunnel Rail Link. The challenge will not be so much in the tunnelling, although that’s not to say that it will have to be done very carefully, but with the stations. They will obviously be massive spaces with interchanges to London Underground stations above them and close proximity to other buildings.”

Question marks remain over the contract form for the scheme’s component works packages. A partnering model with a target price as used on the Heathrow T5 project is the current favourite.

Economists have warned that the addition of Crossrail could tip construction inflation in London from its forecast 3.6% over the next five years towards 5% and push the final price up considerably.

But for the present, businesses will comply with Kelly’s call to “put money on the table now”, so the talking can stop and the building can begin.

“We must have Crossrail, we are so close now,” said a spokesman for the Campaign for Crossrail. “Hundreds of millions of pounds is a lot of money, but it is small beer compared to the benefit to London if Crossrail gets built.”

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